Some folks have informed us that they were taught not to adjust for both GLA and room count, stating that it would be a double-dip, while others have no problem adjusting for both. So, which is the correct way to adjust for these differences so the values aren’t skewed? Well, the answer takes some thought on the valuator’s part, but here is how to decide:
Step 1: Adjust the comps for the difference in GLA. Once this is done, you are comparing apples to apples as far as the structure size.
Step 2: Look at the bed/bath and total room count and ask yourself “If there are two homes of equal size but one of them has an extra bathroom, does that extra bathroom add value in this market?” Then, ask yourself the same question regarding the rest of the rooms within that house. Each room should be assigned a value for how much utility/usefulness it adds. Some rooms will be worth more than others, while some may have no additional value at all in your market, so think it through based on your market knowledge. Typically the common living areas do not require an additional room count adjustment unless your market dictates otherwise. With these adjustments it is important to be brutally honest with yourself…will a potential buyer for this property REALLY pay more to have that room, and if so, how much is truly a reasonable amount?
Another way to decide is to look up rental rates in the subject’s area. You can tell based on how much rent is charged if properties are renting out for higher prices when they contain additional bedrooms or bathrooms.
Step 3: Apply adjustments to the comps where the utility/usefulness of the extra rooms does affect value.
Thanks again for staying tuned, please feel free to write in with your questions!